Voice Over Internet Protocol Report Term Paper

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With the growth of VoIP, new requirements are brought forwarded, such as providing communication between a PC-based soft phone and a phone on PSTN. Such requirements strengthen the need for a standard for IP telephony. Same as other technologies, there are various standards proposed to be accepted by the industry. Two major standard bodies which govern the multimedia transmission over IP network are:

International Telecommunications Union (ITU)

Internet Engineering Task Force (IETF)

Besides ITU and IETF, there are other standard bodies exist, for instance, European

Telecommunications Standards Institute (ETSI), the Telecommunications Industry Association (TIA).

Critical Success Factors in VoIP

The popularity of VoIP and the enhanced Quality of Service (QoS) on IP network clearly brings major opportunities to manufacturing and services companies to serve their customers. The listed the following critical success factors for VoIP (Howe 2001):

VoIP maximizes the usability of network, reduces cost and time, and provides new service opportunities.

VoIP extends service to remote locations with lower cost.

VoIP brings new multimedia service opportunities, such as PC-based call, web-based multimedia conference

IP-based network makes it easier to implement VoIP service.

VOIP Market Dynamics

The high costs of compliance, the increasing number of competitive services, and the emergence of manufacturing and services companies entirely based on the Internet all form a significant set of challenges for any financial services company.

For the larger manufacturing companies with assets over $1B, the focus is on risk mitigation and managing a diverse portfolio of investments to protect and grow shareholders' wealth. The mid-size and smaller firms however are more focused on growth, and specifically in the areas of attracting, selling and servicing customers. Out of this three-step process area of attracting, selling and serving a set of requirements emerges that center on how best to create value for shareholders, grow the customer base yet mitigate risk. In choosing to integrate VoIP into their companies, many companies take a strategic view of integration, including the value chain in addition to the supply chain. The value chain is actually the series of intermediaries that comprise the distribution channels, partners, and intermediaries that also contribute to transactions and services. As a result, manufacturing and services companies are focused on driving technology innovations in four key areas:

Streamlining their supply chains to enable greater profitability

Managing value chains in an effort to drive up higher levels of sales

Improving customer service and loyalty

Enabling the workforce and reducing employee churn

Increasing core operating efficiencies and enabling best practices throughout the organization

When added to the burden of compliance as defined by the Sarbanes-Oxley Act (2002) the many costs of noncompliance are forcing many publicly-traded companies to pursue cost reduction strategies much more aggressively than they have in the past. The Sarbanes-Oxley Act (sometimes called SOX compliance) was deliberately non-prescriptive in its approach to defining the specifics of how the Act would be enabled, leaving significant room for interpretation. While any legislation would appear at first glance to not be associated with telephony costs, specifically VoIP, yet in fact the mechanisms and the networks that VoIP technologies create need to have higher levels of synchronization with other databases, in addition to integration across multiple systems in any publicly-traded organization. Sarbanes-Oxley has been successful in enabling higher levels of accountability throughout publicly-held companies mainly as a result of re-defining core processes as they relate to reporting and disclosure of events, both positive and negative that impacts a company's financial performance according to Gable (2005). The Economist (2006) also states that Indian outsourcers are the greatest beneficiaries from Sarbanes-Oxley spending as U.S.-based companies are often choosing to re-define business processes that are critical to their companies in addition to attaining Sarbanes-Oxley compliance through outsourcing. Another research and advisory firm, (Gartner 2005) defines the strategy of compliance around Sarbanes-Oxley as arduous, including first a company's interpretation of what the business regulations to their specific circumstances, understanding where the organization currently stands relative to compliance efforts, documenting a plan for achieve compliance, executing it, and devising measures and controls.

Compliance and its many requirements are in turn augmenting the role of VoIP in publicly held manufacturing and services companies throughout the U.S., in addition to those in foreign nations that trade on American stock exchanges. VoIP is quickly becoming the foundational element of the compliance networks companies are creating in response to regulatory requirements. The following sections of this literature review specifically look at the value chain and supply chain considerations of the financial services industry, and how VoIP-based technologies are making them more effective.

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Uses of VoIP

The use of VoIP as a unifying communication strategy in many manufacturing and services companies has already begun. VoIP, as has been alluded to earlier in this report, is increasingly part of the Web Services of larger, information-intensive organizations. Figure 2 shows an example of how companies are using VoIP to unify the many departments and systems relied on for serving customers and operating efficiently.

Figure 2: VoIP-based Applications' Integration

Source: Aberdeen Research

Even this level of complexity as shown in Figure 2 implies a simplification of reality, as the process workflows for integrating PSTN and VoIP-based messaging networks throughout an enterprise is much more complex than the figure communicates. Large companies have multiple divisions and offices around the world, with duplicate, sometimes redundant departments and applications. Although enterprises have taken initiatives to centralize certain financial functions, sharing information with the central office often creates redundant work, results in unnecessary costs, and prevents visibility financial operations. Mergers and acquisitions have contributed further difficulties with centralization. Different companies have different it strategies, so they implement different telecom systems. Replacing legacy telecom systems of acquired companies has proved to be difficult and costly. To avoid integration difficulties, the communications systems of acquired companies were often left unchanged indefinitely. Figure 3 shows how an enterprise can be unified using VoIP.

Figure 3: VoIP Enterprise Application Structure

Source: Aberdeen Research

VOIP Competing Technologies and their impact on the Enterprise

The dominant competing technology to VoIP is Plain Switched Telephone Network (PSTN), which is the dominant installed technology in use throughout the majority of businesses and residences for both voice and data communication. PSTN began as an analog-based technology that relied on circuit-switched telephone networks. These circuit-switched networks form the foundation for how the Internet functions today using Internet Packet-based Switching networks today. PSTN also was originally designed as a fixed-line telephone system, which is significantly different than the approach VoIP uses of multi-routing throughout switching networks to complete a call. Having originally begun as an analog-based technology, the majority of U.S.-based PSTN networks are digitally based, making clarity, speed, accuracy and asynchronous communication possible. PSTNs' legacy system installations and evolution to digital communication, in addition to the stability of the technology itself have led businesses to continue using this technology as their communication standard. The major disadvantage however are the cost and fee structures that telephone companies are applying on top of PSTN-based networks. This cost element is what is compelling businesses to consider replacing their PSTN with VoIP-based technologies. The long-term savings of having packet switching and application provider functions managed over the Internet is worth the time to coordinate networks using VoIP-based technologies according to early adopters. The inherent risks of synchronizing significant amounts of traffic over a VoIP are economically justifiable given the significantly lower costs relative to fee structures that PSTN-based networks rely on. In addition to these factors, businesses are beginning to favor VoIP due to its use of the Internet as the communications platform, thereby making it possible to send and receive calls at low or no cost from PDAs and other electronic devices. In taking all these factors into account the value chain of PSTN vs. VoIP emerges, which is shown below:

Source: From PSTN vs. VoIP Regulatory Analysis Chintan Vaishnav, ESD, MIT May 31, 2007

The implications for businesses is that despite the slightly increased risk of having to rely on multiple points of coordination over the Internet for VoIP to remain stable, in addition to the security risks (which are discussion in the next section), the cost savings are so significant that it makes sense as a communications strategy financially. The financial implications of VoIP are increasing the level of research and development investment by both traditional PSTN providers in addition to companies with Internet-based business models including eBay, Google and Yahoo. Each of these companies have alluded to the opportunities in VoIP throughout their investment analyst briefings with Google announcing in November, 2007 an Application programming Interface (API) for supporting GPS positioning of a telephone and its plotting on Google Maps. The bottom line is that PSTN will continue to have the majority of telephone users globally in the next five years, yet by the 2011-2012 timeframe with the advancements in security and value chain integration, it is feasible that VoIP will eventually overtake PSTN as the dominant voice communication platform.

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